Kinh tế học - Chapter 2: Thinking like an economist

Thinking Like an EconomistChapter 2Economics trains you to. . . . Be mindful about the choices that you make.Evaluate the cost of individual and social choices.Examine and understand how certain events and issues are related.But there is the issue of terminology, some math, and GRAPHS, GRAPHS AND SOME MORE GRAPHS!The Economist as a ScientistThe economic way of thinking . . .Involves thinking analytically and objectively.Makes use of the scientific method.Involves the use of abstract models to focus the discussion on a main idea or theme in the complexity of the real world.To apply the scientific method in economics, assumptions are used to make the world easier to understand.Ceteris Paribus Assumption-All else equal.Role Play Scenario-Purchasing something at a store.Economic Models Economists use models to simplify reality in order to improve our understanding of the world. As simplifications of reality, models need assumptions.A Model of Boids FlyingModels start small and then grow in increasing complexity.Play Bolero by Maurice RavelGraphing DataA graph reveals a causal relationship between two variables.The vertical line is the y-axis.Independent variable.The horizontal line is the x-axis.Dependent variable.How do we show a negative and a positive relationship between variables?Two Simple Rules for Movements vs. Shifts Rule OneWhen an independent variable changes and that variable does not appear on the graph, the curve on the graph will shift.Rule TwoWhen an independent variable changes and does appear on the graph, a movement along the existing curve will occur. The curve will not shift.Graphing DataEconomists use three types of graphs to reveal relationships between variables. They are: Time-series graphs Cross-section graphs Scatter diagramsTwo of the Most Basic Economic Models AreThe Circular Flow DiagramThe Production Possibilities Frontier.The Circular-Flow DiagramFirmsHouseholdsMarket for Factors of ProductionMarket for Goods and ServicesSpendingRevenueWages, rent, and interestIncomeGoods & Services soldGoods & Services boughtLabor, land, and capitalInputs for productionJournal Assignment-Circular Flow DiagramDraw a circular flow diagram.Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities:Sam pays a storekeeper $1 for a quart of milk.Sam gets a quart of milk.Sally earns $4.50 per hour working at a fast food restaurant.Sally works at the restaurant.The Production Possibilities FrontierShows the various combinations of two goods that can be produced by one firm.Assumes two goodsAssumes fixed technology and fixed factors of production.The Production Possibilities FrontierQuantity ofComputersProducedQuantity ofCars Produced3,00001,0002,0007001,000300AB2,200600CDThe Production Possibilities FrontierQuantity ofComputersProducedQuantity ofCars Produced3,0001,0002,0002,200A70060030001,000BCDProductionpossibilitiesfrontierConcepts Illustrated by the Production Possibilities FrontierEfficiencyTradeoffsOpportunity CostEconomic Growth4,000The Production Possibilities FrontierQuantity of ComputersProducedQuantity ofCars Produced3,0002,000A70001,000E2,100750An outward shift in the production possibilities frontierIncrease in technology to produce computers.Microeconomics and MacroeconomicsMicroeconomics focuses on the individual parts of the economy.How households and firms make decisions and how they interact in specific marketsMacroeconomics looks at the economy as a whole.How the markets, as a whole, interact at the national level. The Essence of Microeconomics-Buyers and SellersThe Many Facets of MacroeconomicsTwo Roles of EconomistsWhen they are trying to explain the world, they are scientists.When they are trying to change the world, they are policymakers.Positive versus Normative AnalysisPositive statements are statements that describe the world as it is. Called descriptive analysisNormative statements are statements about how the world should be.Called prescriptive analysisWhy Economists Agree and DisagreeWe agree on the methodology, but not on the underlying assumptions underlying incentives and behavior.Example-No Child Left Behind and Test Scores.